The Barnett Formula - Select Committee on the Barnett Formula Contents


Examination of Witnesses (Questions 220 - 239)

FRIDAY 27 FEBRUARY 2009

Mr John Swinney

  Q220  Lord Forsyth of Drumlean: You have not really answered my question. Some of the officials are the same officials, and it may have changed because the baseline has changed and Scotland has changed, but I think we should be honest about this, at the root of this there was certainly in my day within the Scottish Office a belief that if Scotland was subject to a needs-based assessment of funding that that would result in a reduction in the budget. I would be surprised if you had not been given the same advice. The fact that you are avoiding question makes me think that perhaps you have.

  Mr Swinney: I have given you the answer I have given you about what advice I have had. What I would say is that if you look at the information that is published publicly about public expenditure in Scotland, which tries to assess the issue that Lord Rowe-Beddoe is raising about the allocation of public expenditure, the most recent government expenditure and revenue in Scotland demonstrated the perspective of public expenditure in Scotland versus public expenditure in the rest of the United Kingdom, and it shows essentially the fundamental make-up of how that identifiable and non-identifiable expenditure comes together. That obviously relates to current patterns of public expenditure. It does not relate to a needs assessment but it relates to the current levels of public expenditure in Scotland.

  Q221  Lord Forsyth of Drumlean: Just to pursue this, I do not buy the advice by the way, but the Chairman has referred to two exercises on a needs-based assessment both of which ran into the sand. The first one was done because the intention of the then Labour Government before 1979 was that they would bring in a Scottish Assembly and they were looking at how it could be funded and they concluded—obviously officials had concluded—that if we were going to have a Scottish Assembly and change the constitutional arrangements, you had to have something other than a straight population-based method of funding, and that is why that exercise was done. I was not a member of the Labour Government and so I do not know what happened, but my guess is that governments of all parties have thought that a needs-based assessment might actually result in Scotland being disadvantaged and therefore the thing has been buried. There has now been a fundamental constitutional change of the kind you describe, and you describe some of the difficulties. I am trying to get to the bottom of why you are so hostile to moving from a just straight arithmetic population-based system of the funding to needs. I am just wondering if your officials are telling you that that would disadvantage Scotland.

  Mr Swinney: The reason why I am against it is because I want to move to a more robust framework. I am sorry if that is a frustrating line of argument but that is my line of argument and that is my political position.

  Q222  Lord Forsyth of Drumlean: I understand that, but we have to actually look at where we are and you have described some of the problems and I am just pressing you on this.

  Mr Swinney: Where we are, Lord Forsyth, and where I want to go in this debate is, I am pretty certain, a different place to where you want to go to on the constitutional debate.

  Q223  Lord Forsyth of Drumlean: I am not talking about that. We are not talking about the constitutional debate.

  Mr Swinney: I appreciate that the Committee has a narrow remit around about the Barnett Formula, but my perspective is that I want the argument on fiscal responsibility to go into a direction which allows us to exercise greater fiscal responsibility and flexibility than perhaps personally you might wish, Lord Forsyth, or which the Committee's remit allows it to consider, and that is the difference of view that we have.

  Q224  Chairman: I understand that that is your answer. You do not like the way in which the Barnett Formula operates at present and you have given us examples of that. You are not prepared to go down the road which says let us have a needs assessment. Can you say that Barnett in those circumstances is operating fairly?

  Mr Swinney: I have given you examples where Barnett is not operating fairly.

  Q225  Chairman: Do you not think if you went down a needs assessment route you would produce a fairer result?

  Mr Swinney: On the basis of the high level of subjectivity that I think is involved in a needs assessment and, secondly, by virtue of the fact that the arrangements that we experience in relation to some of these questions, that would suggest to me that our ability to influence the composition of a needs-based formula would be entirely dependent on persuading the Treasury of their willingness to do certain things. I am not persuaded of that.

  Q226  Chairman: You have a long-term objective but in the meantime you do not like Barnett, you do not think it operates properly, and you do not want a needs assessment, you really do not mind if it produces fairer results as a result of that needs assessment; you would rather live with what you have got?

  Mr Swinney: I have made that position very clear this morning. I would rather deal with what we have got before I move on to the preferred option which I have set out publicly this week in terms of the exercising of fiscal responsibility.

  Q227  Lord Sewel: And you reject a needs-based approach despite the fact that you use it in relation to local government and it is a needs-based approach that is used in just about every other state which has a broadly similar relationship between a central state and a devolved assembly?

  Mr Swinney: I have set out the direction of travel that I wish to go in relation to this.

  Lord Sewel: We accept that is the direction of travel but it is in this period that you are going to have a grant-based system for a period of time and you are saying no to needs in a way which I find difficult—I think we all find difficult—to understand, given that it is a needs-based approach which underpins the relationship between you and local government and underpins the relationship in other regimes between the central government and devolved administrations and federal administrations elsewhere. I am not aware, you see, of any funding basis that depends purely on a population accrued/population-driven approach that the Barnett Formula is and that you say is your preferred option in the short term.

  Q228  Chairman: It gives you that result but it is a result you do not like because you do not think it operates fairly?

  Mr Swinney: My perspective on this is why put off undertaking the fundamental change in the financial arrangements by constructing some other formula for doing this? Why do we not just change the financial responsibility that we have? That is my fundamental point.

  Q229  Lord Sewel: It is a very dangerous zero sum game because you are actually saying, "I do not want to change the existing situation because I want something called fiscal autonomy." If you do not get fiscal autonomy you really do not have an argument about changing the existing arrangements.

  Mr Swinney: I would rather concentrate on the argument for getting fiscal autonomy, for which there is a growing consensus within Scotland that that is the right way that we should proceed.

  Q230  Lord Sewel: That is very risky, is it not?

  Mr Swinney: It is a representative position of a broadly held view in Scotland that we need to have greater fiscal autonomy.

  Lord Sewel: In the intervening period on grant you have no view?

  Q231  Chairman: We cannot argue fiscal autonomy so that the position is that until you get fiscal autonomy you have no real view on the arrangements?

  Mr Swinney: I have set out in a number of responses issues that concern me about the current funding arrangements.

  Q232  Lord Sewel: Let us go at it another way because I want to get your criticisms on the transparency of the formula. You seem to be saying that your real concern is what comes within the purview of the formula and what does not, what goes into the formula?

  Mr Swinney: Yes.

  Q233  Lord Sewel: Right, so that is the criticism there. You think that because population has specific numbers associated with it, which are objective numbers based on the number of people, then the transparency is all right on that and that scores high on transparency; is that right?

  Mr Swinney: Yes.

  Q234  Lord Sewel: And then if we go on to its effect on your policy agenda, it would seem to be that you are almost content that what the formula produces does give you sufficient scope to shape your policy agenda because you are able to shape your policy agenda, as you say, by viring within the total and you have never felt the need to use what fiscal autonomy you already have, so clearly you do have scope to address your policy agenda under the present arrangements?

  Mr Swinney: We will have aspirations to do other things and take other initiatives, but, quite clearly, the money will not exist to do all the things that we want to do.

  Q235  Lord Sewel: Because of how much you get?

  Mr Swinney: Yes.

  Q236  Lord Sewel: Of course you do have fiscal autonomy in any case and you do not use it.

  Mr Swinney: We have one tax varying power, and certainly my view is that the Government has not argued for the use of that tax varying power and we do not intend to use that tax varying power because it is not just increasing tax to get more money, it is not the end of the argument, it is a much more complicated argument than that. What the arrangements currently allow us to do is to make a judgment about how we distribute pretty much without restriction within two pots of what is resource and what is capital. We can make those judgments. Whether that is sufficient, whether that is enough to allow us to satisfy our policy agenda is a fundamentally different question and that is where I make the argument for greater fiscal responsibility to allow us to be able to take different decisions that would allow us to affect the size of that cake, because we have essentially a fixed financial envelope, with the one exception that we could increase tax by three pence in the pound.

  Q237  Lord Forsyth of Drumlean: What about Lord Rowe-Beddoe's point about convergence, because if the Formula is just operating on a population basis and you do not have the opportunity to go along to knock on the Chief Secretary's door and get a good response, which is probably exacerbated if you have different political regimes in power in different parts of the United Kingdom, the effect will be mathematically, because the baseline is higher, that there will be convergence between England and Scotland. The effect of continuing with a population-based system without any bells and whistles will be that Scotland's relative share of resources will go down and your budget is going to get squeezed. What Lord Sewel is arguing is do you not want to be in a position to say actually we do not want convergence because the need in Scotland is greater, and by rejecting the idea of need and by embracing this position, are there some tactics here? Do you see this as a way of testing the system to destruction so you get whatever else it is you want? From our point of view as a Committee we look at this and say there are some problems here, how can these problems be fixed in the short term, if you want to change the system that is fine, but where the Committee is finding it quite difficult to understand is why are you not flagging up this problem of convergence which Lord Rowe-Beddoe mentioned because you are in a squeeze here?

  Mr Swinney: Because I have my agenda, Lord Forsyth, which is to advance on the argument of ensuring that Scotland has the proper equipment of financial responsibility.

  Q238  Lord Forsyth of Drumlean: What about protecting public services?

  Mr Swinney: That is precisely why I pursue the agenda I pursue—to ensure that Parliament has the ability to exercise that greater degree of fiscal responsibility and flexibility that I seek.

  Q239  Chairman: We are up against the wall of fiscal autonomy. I am told that you need to be away by quarter past. Can I thank you very much for coming. We have had an illuminating and interesting morning. I am very grateful to you for the candour with which you have answered our questions.

  Mr Swinney: Thank you.



 
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